The tower management company Indus Towers raised Rs 15,300 crore on Wednesday when British telecom behemoth Vodafone Plc sold 484.7 million shares, or 18% of the company, through block agreements.
This was the biggest deal in the domestic markets, with block deals that day totaling Rs 28,500 crore ($3.4 billion).
Other notable transactions included the sale of a 7.51 percent share by Wabco Asia for Rs 2,194 crore in the international company ZF Commercial Vehicle Control Systems India (previously Wabco India) and a 6 percent equity stake by Fosun Pharma for Rs 1,754 crore in Gland Pharma.
Furthermore, for Rs 845 crore, private equity giant WestBridge sold a 1.75 percent share in AU Small Finance Bank.
The record-breaking year for India’s domestic markets is reflected in this spike in share sales. India has outperformed Asia this year in block trades and share placements, with deals totaling more than $20 billion (about Rs 1.7 trillion), according to Bloomberg. Rising stock prices and significant inflows into domestic mutual funds are the main drivers of this activity.
The primary purpose of the money raised from Vodafone Plc’s equity sale is to pay back current lenders. JP Morgan analysts estimate that Indus Towers could receive as much as Rs 4,250 crore in compensation.
Vodafone Plc’s ownership of Indus Towers has dropped from 21.5% to 3.1% as a result of the deal. Additionally, Bharti Airtel disclosed that it had purchased 28.95 million shares, bringing its total ownership in Indus Towers to almost 49%.
The placement generated Rs 15,300 crore (€1.7 billion) in gross proceeds, which will mostly reimburse Vodafone’s current lenders for €1.8 billion in outstanding bank borrowings secured against Vodafone’s Indian assets, the company said in a note.
JP Morgan emphasised that Indus Towers holds a secondary pledge on Vodafone Plc’s initial 21% stake, with any remaining funds up to Rs 4,250 crore being applied, either directly or indirectly, to Indus Towers’ obligations.
The major commitment for financing a $1.4 billion loan received in 2019 to participate in Idea’s rights offering is Vodafone Plc’s 21% share, as stipulated in the security package agreed upon at the merger of erstwhile Bharti Infratel and Indus Towers.
Chief financial officer of Indus Towers Vikas Poddar told JP Morgan analysts that from January 2023, the company has been getting 100% of its receivables from Vodafone Idea (Vi), with collections surpassing 100% in the final two quarters of 2023–2024. As a result, several of the protections for dubious debts have been cut.
“While Vodafone’s equity raise can only be used for capital expenditure (capex), discussions are ongoing with Vi to settle provided-for dues of Rs 5,400 crore, not vendor payments,” JP Morgan stated.
While Vi’s shares stayed stable and increased by 0.3% on Wednesday, Indus Towers’ shares had a 3.6% decline during intraday trading and closed at Rs 334 per share.
Growth anticipated
Poddar stated that the company’s free cash flow (FCF) would be under strain going forward due to increased capex. Better receivables from Vi, however, would improve FCF and raise the possibility of dividends in 2024–2025 (FY25).
Given that the company has not paid a dividend for the last two years due to capex and Idea receivables concerns, analysts predict that a special dividend of Rs 15 per share in FY25 could result from an equity infusion into Indus Towers to pay off past dues.
Vi’s growing tenancy and Airtel’s continuing 5G rollouts are expected to fuel Indus Towers’ further expansion.
According to JP Morgan, “Indus Towers expects growth to come from new tenancies from Vi as it begins deploying capex to close the coverage gap in rural/semi-urban locations, as well as continued 4G rural rollouts by Airtel in FY25.”
Future growth is also anticipated to be bolstered by the revenue generated by 5G deployments.